State v. Southern Kraft Corporation

• Decision Date: 28 May 1942
• Docket Number: 1 Div. 161.
• Citation: 8 So.2d 886,243 Ala. 223
• Parties: STATE v. SOUTHERN KRAFT CORPORATION.
• Court: Alabama Supreme Court

8 So.2d 886

243 Ala. 223

STATE v. SOUTHERN KRAFT CORPORATION.

1 Div. 161.

Supreme Court of Alabama

May 28, 1942

Rehearing Denied June 30, 1942.

Thos S. Lawson, Atty. Gen., and John W. Lapsley and J. Edw Thornton, Asst. Attys. Gen., for appellant.

McCorvey, McLeod, Turner & Rogers, of Mobile McQueen & McQueen, of Tuscaloosa, and Benners, Burr McKamy & Forman and Frontis H. Moore, all of Birmingham, for appellee.

BROWN Justice.

The State Commissioner of Revenue, acting as the chief executive officer of the department of revenue [Code of 1940, Title 51, § 115], made an assessment under the Use Tax Act, approved February 28, 1939, Code of 1940, Title 51, §§ 787-811, against appellee, Southern Kraft Corporation, a body corporate, engaged in Mobile County, in the business of manufacturing Kraft pulp and Kraft paper from sap pine for resale. The basis for computing the tax is the sale and purchase price paid by appellee for salt cake, sulphur, lime, starch, hydrate of lime and chlorine, used by the appellee in the process of manufacturing said products.

The appellee protested the levy before the Commissioner of Revenue on grounds, among others, that the said materials, so purchased and used in the manufacturing of Kraft pulp and Kraft paper, "entered into and became an ingredient or component part" of said products so manufactured for resale, and said purchase was at wholesale, within the purview of said act, and therefore not subject to the use tax.

This protest was overruled by the Commission and the taxpayer appealed to the Circuit Court of Mobile County, in Equity, where an issue was made up and tried on documentary evidence, facts stipulated, and the testimony of witnesses taken ore tenus in the presence of the court, and on the issues thus presented the court stated the following conclusions of law and fact:

"The validity of the assessment depends upon the interpretation of the said Use Tax Act and more especially on the following definition of 'wholesale' therein appearing, viz.: 'The term wholesale shall include a sale of tangible personal property or products (including iron ore) to a manufacturer or compounder which enters into and becomes an ingredient or component part of the tangible personal property or products which he manufactures or compounds for sale, and the furnished container and label thereof.'

"Through the stipulation and the other evidence offered at the hearing, it was established without contradiction that the Southern Kraft Corporation was, during the period covered by the assessments, a manufacturer of Kraft pulp and Kraft paper for sale, and that each and every of the products listed on Exhibit 'A' to the stipulation, namely, salt cake, sulphur, lime starch, hydrate of lime and chlorine, when used in the process of manufacture adopted or used by the appellate, entered into and became an ingredient or component part of Kraft paper, this being a tangible product which the appellant manufactured for sale; that salt cake, sulphur and lime entered into and became a component part of the Kraft pulp which, according to the testimony in the cause, is a salable commodity or product manufactured for sale by the appellant. The appellant's position that the chemicals or materials above named actually entered into and became an ingredient or component part of the tangible personal property or products which it manufactured for sale, and remained a constituent or component part thereof was established by very able and convincing testimony, including that of Dr. Stewart J. Lloyd, Dean of Chemistry of the University of Alabama. The State called another eminent authority, Dr. Jack Montgomery, Professor of Chemistry at the University of Alabama, who testified that he had heard the several witnesses for the appellant testify as to the fact that the above listed materials actually entered into and became and remained a component part of the finished products which appellant manufactured for sale, namely, Kraft pulp and Kraft paper, and that the testimony of appellant's witnesses was in accord with his professional opinion.

"It was further shown by undisputed evidence that Kraft paper is distinct from other paper, and that the use of the chemicals named in Exhibit 'A' or other chemicals containing their same properties is necessary in its manufacture, and without their use Kraft paper or Kraft pulp could not be manufactured. It was further established by the evidence that if all of the said chemicals were removed from the pulp at any stage of the process before it was converted into paper, that the product which came out as paper would not be Kraft paper, and would thus lack the qualities of Kraft paper, the most important of which, under the testimony is strength and adaptability to uses to which paper other than Kraft is not adaptable. * * *

"All of the testimony in the case shows without dispute that the chemicals listed on Exhibit 'A' to the stipulation, namely, salt cake, sulphur and lime, enter into and become a component part of Kraft pulp and that at least a part of said chemicals remain there and that salt cake, sulphur, lime, starch, hydrate of lime and chlorine, the chemicals or materials listed on Exhibit 'A' to said stipulation, enter into and become a component part of Kraft paper when used in the appellant's processes of manufacture and remain there. In both instances the testimony shows that the presence of these chemicals in the finished articles is detectable by analysis.

"It is therefore the opinion of the Court that the assessments involved in this appeal were made under a misapprehension of law or fact and that said assessments in their entirety are void and should be set aside and annulled."

The stipulation of facts shows that said materials specifically enumerated in Exhibit A attached there were purchased by the appellee outside of the State of Alabama and brought into and used in Mobile County in the processes of manufacturing its products, and that no tax of any sort had been paid thereon.

The evidence further shows that pine wood is the basic material used in the manufacture of Kraft pulp and Kraft paper, 20% of which "enters into and becomes an ingredient or component part" of the pulp; that starch, hydrate of lime (slacked lime) and chlorine are used only in the process of converting the pulp into paper, and that a large percentage of the calcium, the combined product of hydrate of lime and chlorine, and the starch enter into and become an ingredient or component part of Kraft paper.

The evidence further shows, to state its general effect, that through the chemical reaction in the process of manufacture 6/10 of 1% of the salt cake or sodium remains as an ingredient of the pulp and goes into the paper; that 2/100 of 1% or less of the calcium, the chemical...